Is Do-It-Yourself Bankruptcy a Good Idea?

Do it yourself bankruptcy simply means you liquidate your own assets instead of having a court take you through the process. Going through bankruptcy means you will have to pay off each of your debts, in order of highest to lowest priority, by selling your assets to generate cash. There are many upsides to taking this task on without a lawyer or a court. However, there are also some key reasons why going through the legal system may be better for your situation.

Advantages of Do-It-Yourself Bankruptcy

  • You choose which assets to sell - Some people do not want the court to control which assets they sell and which they keep. If you are concerned with handing these decisions to a judge, you may want to opt for a do-it-yourself option that will allow you to set your own priorities.

  • Keep the bankruptcy off of your record - A key reason people avoid going through the court is to keep the bankruptcy off of both a financial record and a credit report. Your credit score will drop much less if you handle the bankruptcy yourself than if you go through a court and accept the mark on your record. Your score will still drop as you sell off your assets, but it will be easier to recover from than if you accepted the legal bankruptcy.

  • Save on legal fees - The cost of going through the courts can add to the expense of your process when you already have very little free cash to spend. Avoiding legal fees can save thousands of dollars.

  • Faster - Many people find they can resolve their debts very quickly with a DIY bankruptcy, whereas the courts take a lot of time to fully complete the process. 

Disadvantages of Do-It-Yourself Bankruptcy

  • No legal protection - The main advantage you will miss out on if you handle your bankruptcy yourself is the legal protections bankruptcy laws offer you. Once you officially declare bankruptcy, your lenders must stop contacting you. Further, fees and penalties cannot continually be assessed on your outstanding debt. Your loans are essentially suspended until you can find the cash to pay them off. When you go through the process alone, your lenders will keep contacting you and assessing fees as you attempt to resolve your debt.

  • Emotions before reason - Few people are able to truly emotionally remove themselves from a bankruptcy and do the right thing. Most people will make the mistake of holding on to assets they feel strongly about and paying off personal debts instead of senior debts first. When a court makes these decisions for you, it can often be easier to accept them.

  • Easy to make mistakes - Bankruptcy lawyers spend years studying and practicing negotiating loan contracts. This is a highly specialized field, and it is very easy to overlook things or make common mistakes. In a DIY bankruptcy, it is easy to miss a point in rewriting a contract only to find you have not totally absolved yourself of the debt. 


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